FUNCTIONS OF THE SECURITIES MARKETS
The securities markets perform very important functions that benefit the economy, the corporations and the individual investors
To The Investor These Are Some Of The Benefits:
a) It enables investors to spread their risk through diversification. The existing of a stock market makes it possible for an investor to spread and diversify his/her risk by holding a well-diversified portfolio.
b) It provides a liquid investment opportunity. Liquidity is very important to every investor. This is because every investor wants to convert his/her investment quickly into cash when the need arises. The existing of stock market makes it possible because any investor with a security that is traded on the security market can easily dispose of such asset when the need arises without having to lose large part of the principal investment or having to incur high commission.
To The Corporation And Other Investment Seekers, The Benefits Are:
a) Securities market (stock exchange) makes access to investment capital possible. Firms in need of investment capital can raise it through the exchange.
b) It provides opportunity for fast growing and young companies to obtain finance. Such companies can raise capital through the issue of shares (initial public offer).
c) It creates an opportunity for corporations to become known to national and international investors. Ashanti Goldfields Company (AGC) is listed on the New York Stock Exchange. This has made it an international firm making it possible for people who do not know Ghana to know and invest in AGC.
Other Functions Of The Stock Market Are:
a) It provides continuous market for the purchase and sale of securities.
b) It provides a mechanism for determining a fair market price for securities traded on the exchange.
c) It imposes some standardization regarding the release of financial information by companies whose securities are traded on the exchange. For example, all listed companies are supposed to publish their audited final accounts each year.
d) It attempts to protect investors who maintain account at member brokerage firms. It does this by regulating trading practices and imposing financial standards upon member firms.